CAG blasts govt’s petro pricing formula

Strongly critical of the major petroleum products pricing policy pursued by the government, the Comptroller Auditor General has said the methodology adopted affords an undue benefit to state-owned refineries and private refiners.

The report by the national auditor tabled in Parliament on Friday said petroleum products are priced as if they are imported from abroad whereas in reality they are produced in local refineries. Notional import related expense such as customs duty, freight and insurance that are not incurred but are reimbursed to refineries works out to `50,513 crore for the 2007-12 period.

“This affords an undue benefit to private refiners (Reliance Industries Limited and Essar Oil Limited), which was estimated at Rs. 667 crore on high speed diesel alone in one year (2011-12),” the audit revealed.

Nor has such price protection translated to higher investment in technology upgrade of refineries as was envisaged, the CAG report pointed out.

“Allowing for such import related expenses on crude oil, estimated at Rs. 23,887 crore, the OMCs (oil marketing companies) ought to have benefited by around Rs. 26,600 crore through the pricing of products at the refinery gate,” the report said.

Government refineries uplift petroleum products from standalone/private refineries in order to fill the gap between production and domestic requirement. OMCs pay these refineries import linked prices or rifinery gate prices (RGP) for such products. Private refiners, however, export their balance products at prices lower than RGP.

Moreover, the settlement of reported under-recoveries of OMCs was consistently delayed, in some cases up to 310 days. “OMCs borrowed working capital and suffered an interest loss of Rs. 5,180 crore during 2007-08 to 2011-12 on account of delay in compensation,” the report said.